Fed approves interest rate hike, signals one more to come this year — SkimNews
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- Federal Reserve's FOMC voted 12-0 to raise the overnight funds rate by 25 basis points to a 3.75%-4% target range, marking the central bank's first rate hike since July 2023 after holding steady all year.
- The dot plot showed 16 of 18 officials expected another hike this year, with 4 of those seeing two more as possible; 2 officials expected the committee to stop at one hike, and Warsh declined to submit a dot.
- Fed Chair Kevin Warsh broke with the Fed's usual approach of looking through supply-driven inflation, citing fuel costs from the Iran war and lingering tariff impacts as factors the FOMC chose to act on this time.
- Fed projections raised inflation expectations to 3.7% headline PCE and 3.4% core — both up 0.1 percentage points from June — with officials not expecting to reach their 2% target until 2029; the unemployment outlook was lowered to 4.1%.
- The S&P 500 rose after Wednesday's announcement while Treasury yields fell, signaling investors approved of the Fed's anti-inflation stance; the 10-year yield had risen about a quarter percentage point since Warsh's Aug. 28 Jackson Hole speech.
- Mortgage rates had climbed to 7.19% on a 30-year fixed, up 38 basis points since Jackson Hole and more than a full percentage point from a year earlier, according to Mortgage News Daily.
Why it matters: The Fed's decision to hike despite an oil shock it would normally look through — fuel costs tied to the Iran war plus tariff effects — signals a more aggressive posture than markets expected. With the overnight rate now at 3.75%-4% and 30-year mortgages already at 7.19%, American homebuyers and borrowers face sustained pressure, and the Fed itself doesn't project hitting its 2% inflation target until 2029.
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